McDougle v. Dakota of Rocky Hill, LLC

          RULING ON PLAINTIFFS’ MOTION FOR CLASS CERTIFICATION

          Stefan R. Underhill United States District Judge

         This lawsuit was brought by Thomas T. McDougle (“McDougle”) and Rosemarie Taylor (“Taylor”) against their employer Dakota of Rocky Hill, LLC (“Dakota”), a steakhouse and tavern in Connecticut. McDougle has worked as a restaurant server at Dakota since August 2015 and Taylor has been a server since October 2015. McDougle and Taylor (“the Plaintiffs”) claim that Dakota violated Connecticut and federal law by failing to satisfy the Fair Labor Standards Act’s (“FLSA”) “Tip Credit” notice requirement. Specifically, the Plaintiffs allege that Dakota violated Section 203(m) of the FLSA by taking a tip credit against its servers’ wages from February 2014 to the present without providing sufficient notice. On October 19, 2018, the Plaintiffs filed a motion for class certification pursuant to 29 U.S.C. § 216(b). See Doc. No. 79. I held oral argument on June 11, 2019 and took the motion under advisement. See Doc. No. 103. For the reasons that follow, the motion is denied.

         I. Standard of Review

         Under the FLSA, a collective action for unpaid wages may be maintained by any one or more employees for and on “behalf of himself or themselves and other employees similarly situated.” 29 U.S.C. § 216(b).^[1] Conditional certification is appropriate if a plaintiff makes a “factual showing that they and potential opt-in plaintiffs together were victims of a common policy or plan that violated the law.” Myers v. Hertz Corp., 624 F.3d 537, 555 (2d Cir. 2010) (internal citations and quotations omitted).

         “District courts in this circuit have undertaken a two-stage inquiry” in deciding whether notice should be issued. Perkins v. New Eng. Tel. Co., 669 F.Supp.2d 212, 217 (D. Conn. 2009). First, the court must “determine whether the proposed class members are similarly situated.” Id. For the first step in the inquiry, before discovery is conducted, “a class representative has only a minimal burden to show that he is similarly situated to the potential class, which requires a modest factual showing sufficient to demonstrate that they and the potential class members together were victims of a common policy or plan that violated the law.” Marcus v. Am. Contract Bridge League, 254 F.R.D. 44, 47 (D. Conn. 2008) (internal quotations omitted). If the first inquiry is satisfied, then the action may be conditionally certified as a collective action, and, accordingly, notice may be issued to the prospective class members. Id.

         During the second step, which follows the discovery phase, a court “examine[s] all the evidence then in the record to determine whether there is a sufficient basis to conclude that the proposed class members are similarly situated.” Id. “At step two, with the benefit of additional factual development, the district court determines whether the collective action may go forward by determining whether the opt-in plaintiffs are in fact similarly situated to the named plaintiffs.” Glatt v. Fox Searchlight Pictures, Inc., 811 F.3d 528, 540 (2d Cir. 2016).^[2]

         The district courts possess discretionary power to authorize the sending of notice to potential class members. Hendricks v. J.P. Morgan Chase Bank, N.A., 263 F.R.D. 78, 82 (D. Conn. 2009). Notice is intended to be issued early in the course of a collective action to “ascertain [] the contours of the action at the outset” and further the broad remedial purpose of the FLSA. Hoffman-LaRoche v. Sperling, 493 U.S. 165, 171 (1989). When evaluating whether to authorize notice in FLSA collective actions, district courts have authority to scrutinize the merits of the Plaintiffs’ claims. See, e.g., Amendola v. Bristol-Myers Squibb Co., 558 F.Supp.2d 459, 467 n.9 (S.D.N.Y. 2008).

         II. Background

         Under the FLSA, “an employer of a ‘tipped employee’-i.e., an employee engaged in an occupation in which he or she customarily and regularly receives more than $30 a month in tips, . . . may utilize a unique payment structure to compensate employees.” Benavidez v. Greenwich Hotel Ltd. P’ship, 2019 WL 1230357, at *9 (D. Conn. Mar. 15, 2019) (internal citation and footnote omitted). “Employers may pay a tipped employee using a combination of: (1) a base hourly wage . . . which may be as low as $2.13; and (2) an additional amount on account of the tips received by the employee (commonly known as a ‘tip credit’) that is equal to the difference between the base hourly wage and the statutory minimum wage.” Id. (internal footnotes omitted).

         Pursuant to Section 203(m) of the FLSA, an employer must inform its tipped employees of the tip credit provisions of the FLSA in order to retain the “tip credit” against their wages. See 29 U.S.C. § 203(m). Under that requirement an employer must: (1) inform its employees of their server cash wage amount;^[3] (2) inform its employees that they will make tips that will amount to a combined wage that is equal or more than the federal minimum wage (which is currently $7.25 per hour); and (3) allow the employees to retain all tips except for tips that are used in tip pools among employees who customarily and regularly receive tips. See 29 U.S.C. § 203(m)(2)(a). The burden is on the employer to comply with Section 203. See Fuk Lin Pau v. Jian Le Chen, 2015 WL 6386508, at *2 (D. Conn. Oct. 21, 2015). “If [an] employer cannot show that it has informed employees that tips are being credited against their wages, then no tip credit can be taken . . . .” Reich v. Chez Robert, Inc., 28 F.3d 401, 403 (3d Cir. 1994).

         In April 2011, the Department of Labor (“DOL”) revised its regulations regarding the FLSA. See Updating Regulations Issued Under the Fair Labor Standards Act, 76 FR 18832-01. Those revisions include further explanation of Section 203(m)’s tip notice requirement, now codified as 29 C.F.R. § 531.59(b), which provides that a restaurant employer may not:

[T]ake the tip credit unless it has informed its tipped employees in advance of the employer’s use of the tip credit of the provisions of section 3(m) of the Act, i.e.: [1] The amount of the cash wage that is to be paid to the tipped employee by the employer; [2] the additional amount by which the wages of the tipped employee are increased on account of the tip credit claimed by the employer, [3] which amount may not exceed the value of the tips actually received by the employee; [4] that all tips received by the tipped employee must be retained by the employee except for a valid tip pooling arrangement limited to employees who customarily and regularly receive tips; [5] and that the tip credit shall not apply to any employee who has not been informed of these requirements in this section . . . .

29 C.F.R. § 531.59(b) (emphasis added).

         Here, the Plaintiffs allege that Dakota failed to notify its restaurant servers of the five specific provisions of the DOL’s revised regulations. See Pls’ Mem. in Supp. Mot. for Class Cert. (Doc. No. 79-1) at 2. They argue that Dakota’s server orientation, its employee handbook, and its wage posters all fail to satisfy the requirements of the FLSA. The Plaintiffs claim that all Dakota’s servers undergo the same orientation program when they are hired. Id. at 12. During orientation, restaurant servers were orally told details about their compensation but allegedly were never notified of the specific tip credit provisions of Section 203(m) and the amended DOL regulation. To support that assertion, the Plaintiffs rely on Dakota’s new employee handbook (doc. no. 79-3) and Dakota’s “Tip Reporting Policy Form” (doc. no. 68-1 at 9–10), which, according to the Plaintiffs, both fail to expressly inform Dakota servers of the tip credit notice requirement.

         The Plaintiffs also allege that Dakota failed to display any state or federal wage posters in its restaurant until after the lawsuit commenced. See Pls’ Mem. in Supp. Mot. for Class Cert. at 16. After the action was filed, the Plaintiffs contend that Dakota installed a federal wage poster that states, “[e]mployers of ‘tipped employees’ must pay a cash wage of at least $2.13 per hour if they claim a tip credit against their minimum wage obligation. If an employee’s tips combined with an employer’s cash wage of at least $2.13 per hour do not equal the minimum hourly wage, the employer must make up the difference. Certain other conditions must also be met.” Doc. No. 52-3 at ¶ 21. In addition, beginning in February 2017, Dakota began providing each server with a document entitled “Notice of FLSA Tip Credit.”^[4] See Doc. No. 68-1 at 12.

         The current suit was initially filed by McDougle and Taylor on February 15, 2017. See Doc. No. 1. Dakota answered on March 20, 2017. See Doc. No. 14. The Plaintiffs filed an amended complaint on March 20, 2017. See Doc. No. 16. Since March 2017, nine other servers have joined the action. Plaintiffs previously moved for class certification on February 7, 2018 (doc. no. 52) and I denied their motion without prejudice to renewal following discovery on July 18, 2018. See Doc. No. 77. The Plaintiffs filed their second motion for class certification on October 19, 2018. See Doc. No. 79.

         III. Discussion

         A. Tip ...